Starting your retirement plan early is essential, not only to ensure a smooth transition into this life stage but also to ensure you retire at your target date. If your goal is to retire soon, it’s best not to wait until the last minute. Here’s how to kickstart the process.
Secure the Essential Documents
- Obtain Your Current Leave and Earnings Statement: This statement offers a snapshot of your pay, leave balances, and deductions. While actively employed, you have several applicable deductions that go away as a retiree. Understanding how the impacts your net income as a FERS retiree is one of the first steps in evaluating what retirement will look like for you.
- Get a Retirement Estimate: This should include a comprehensive Federal Retirement Benefits report. Your annual Employee Benefits Statement (EBS) benefits statement has a lot of useful identifying information. The Government Retirement Benefits (GRB) platform allows employees to run real-time retirement estimates. Any resources from your Human Resources (HR) department regarding retirement projections are always helpful. These documents help clarify your service history, which determines the amount of your FERS pension payments.
- Review Your Thrift Savings Plan (TSP) Statement: The TSP is vital for federal employees as it serves a similar role to 401(k) plans in the private sector. Ensuring your contributions and investment strategies align with your retirement goals is essential. While your pension and social security payments are mostly set, TSP has variability in how you use these funds and will need a strategy to ensure this portion of funds will meet your long-term financial goals. Keeping up to speed on how your TSP funds are invested is the most important variable, and it directly impacts the amount of income these funds can generate in retirement.
- Social Security Statement: Understanding your potential Social Security benefits is crucial as it constitutes a core part of most retirement plans. Consider both minimum retirement (age 62) and full retirement age (FRA) when planning your benefits. Understanding the timing and differences between the FERS Retirement Supplement and Social Security is essential to maximizing retirement income.
Key Variables to Consider
Eligibility and Timing
- FERS Eligibility: Under FERS, you need to meet an age and years of credible service requirement to retire with full FERS benefits. Minimum Retirement Age (MRA) to receive benefits, age 60, and age 62 are potentially important milestones.
- Social Security Considerations: The minimum age to receive Social Security benefits is 62. Full Retirement Age (FRA) varies depending on your birth year, affecting the benefit amount. Cost-of-living adjustments (COLA) can also impact your Social Security income, helping this income stream keep up with inflation. Remember, the difference between turning social security benefits on at age 62 versus waiting until full retirement age is eight years of monthly payments.
Financial Planning Considerations
- Gross vs. Net Income: It’s important to distinguish between your gross retirement income and your net income after taxes. This distinction helps in shaping a more realistic retirement budget. It’s also good to remember that some of your deductions during active employment will go away as a retiree. Forecasting the changes in income during retirement will give you a clearer picture of your net income once you retire.
- Liquidity Needs: Consider how much readily accessible cash you will need. Liquidity is important for covering unexpected expenses without penalizing your retirement funds. The big 4 emergency/opportunity withdrawals are usually tied to→ House, Car, Medical, Vacation
- Legacy Planning: If leaving an inheritance is important, early planning allows for strategies with lump sum death benefits and surviving spouse income streams. Estate Planning with a will or trust gives you control over how assets are passed to beneficiaries, helping ensure your wishes are carried out according to plan.
Managing Your Assets
Decide whether you want to manage your retirement assets yourself or work with a financial planner. A clear understanding of your benefits and assets is critical for effective management. If you want to continue handling assets independently as you age, life circumstances may impact this decision; it’s a good idea to plan for the future. Ask yourself if you want to “do it yourself” with retirement funds and identify resources to help if needed.
Preparing for Potential Challenges
Even with the best plans, obstacles can arise. Ensure you have a contingency plan for possible financial or personal setbacks, such as market downturns, significant health expenses, or changes in family circumstances.
Are you looking for assistance? We can help!
Starting your retirement planning early and continually adjusting as your situation changes can help you achieve your retirement goals. With the proper preparation now, you can look forward to a financially secure and fulfilling retirement. If you are looking for a guide to help you plan your retirement, Benchmark Financial Group can help. It all starts with gathering your information, discussing your goals, and preparing a plan so that we may help you maximize your income in retirement. With the right strategy, you may get your income equal to or exceed your pre-retirement net income. To get started, schedule an appointment today with Benchmark Financial Group by filling out the form online or calling David Raetz at 913-534-8256 to discuss your financial needs. Benchmark Financial Group is happy to help you navigate your options and determine the best path to move toward your financial goals.
*Securities and Advisory Services Offered Through CreativeOne Securities, LLC Member FINRA/SIPC and an Investment Advisor. Benchmark Financial Group, LLC and CreativeOne Securities, LLC are not affiliated.
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